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Crude oil set for weekly gain despite global surplus

CommoditiesOct 30, 2015 08:50AM ET
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By Libby George

LONDON (Reuters) - Brent crude held close to $49 a barrel on Friday, poised to post the first weekly gain in three weeks despite a supply glut that has tested storage capacity and hammered oil company results.

The potential gain, driven by smaller-than-expected builds in U.S. oil stocks, was widely viewed as a temporary boost in a market that is awash with oil and staring down sluggish economic growth in key markets such as the United States and China.

Brent crude was trading 35 cents higher at $49.15 a barrel at 0820 ET, set for a more than 2 percent weekly rise.

U.S. crude was trading 15 cents higher at $46.21 a barrel, on track to post a gain of nearly 4 percent on the week.

"Looking at the bigger picture, there is still lots of oil in the United States," PVM Oil Associates analyst Tamas Varga said. "We should see a softer market in the coming days."

Traders said a 3.4 million barrel crude build reported by the U.S. Energy Information Administration provided the primary support for the weekly increase. [EIA/S]

The build fell short of some analysts' expectations and sparked a nearly $3 rally in U.S. crude.

A Reuters survey showed October OPEC oil output falling from the previous month, as declines from Saudi Arabia and Iraq outweighed increases from African members.

Also, China's Ministry of Commerce announced a doubling in the country's crude oil import quota for 2016.

But OPEC production remained close to record highs as major producers focus on defending market share, and widespread concerns persisted over China's shaky economic growth.

Bearish data from the United States also tempered gains. U.S. economic growth braked sharply in the third quarter as businesses cut back on restocking warehouses to work off an inventory glut.

Analysts said prices were effectively flat.

"We are treading water," said Gareth Lewis-Davies, director of energy commodity strategy at BNP Paribas (PA:BNPP). "Prices are trading in a very narrow range."

China's closely watched Purchasing Manager Indexes (PMIs), which will be released next week, could give more direction.

Lewis-Davies also said the sharp cuts in oil company spending, and the pain of U.S. shale oil producers, could spark a more balanced market in 2016.

"These price levels are sufficiently low enough to cut into the cost curve of U.S. shale oil producers," he said.

Crude oil set for weekly gain despite global surplus

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